Starbucks CEO Kevin Johnson earned a $1.86 million bonus in fiscal 12 months 2020 in addition to a bigger retention award, designed to maintain Johnson in the place via fiscal 12 months 2022, in response to Starbucks’ proxy assertion.
“The board unanimously supported the performance-based retention rewards granted to our executives in late 2019,” stated Starbucks board member and Ulta Beauty CEO Mary Dillon in an announcement responding to the vote.
Companies search non-binding approval on govt compensation from shareholders via so-called “say-on-pay” proposals outlined in proxy statements annually. Because the proposal isn’t binding, firms needn’t make any modifications based mostly on the result of the vote. But firms are legally required to permit buyers to vote on compensation.
Generally, “it is pretty rare for the ‘say-on-pay’ proposals not to be approved,” stated Kai Liekefett, a associate at Sidley Austin legislation agency who specializes in govt pay and company governance.
When buyers signify they assume executives are overpaid, it might sign underlying shareholder unrest, he stated. Shareholders usually “don’t mind executives making a lot of money, as long as the performance is outstanding,” Liekefett stated.
This time, shareholders have been probably swayed by the steering of Institutional Shareholder Services and Glass Lewis, two influential proxy advisory companies that present steering on how buyers ought to vote on proposals to make sure the absolute best returns, and infrequently successfully dictate how buyers vote.
ISS really helpful that shareholders vote in opposition to the proposal, arguing that the rationale justifying the worth of Johnson’s compensation bundle is “insufficient considering the exceedingly large target and maximum opportunities under the award,” and provided that Johnson earned a particular efficiency award the earlier 12 months. Glass Lewis, additionally really helpful shareholders vote against the proposal, saying that Starbucks “paid [its CEO] moderately more than its peers, but performed worse.”
ISS has really helpful shareholders vote in opposition to compensation packages for about 12% of firms annually for the previous decade, in response to an evaluation revealed in March by Compensation Advisory Partners, a consulting agency specializing in govt and director compensation. The report discovered that in about 96% of circumstances when most shareholders voted in opposition to an govt pay proposal, the ISS had suggested to vote in that method.
Shareholders finally determined to go together with the advice issued by the advisories and voted down Johnson’s proposed compensation bundle.
Though Starbucks isn’t required to make any modifications, it ought to take shareholder sentiment under consideration because it considers the way to construction govt pay shifting ahead, stated Liekefett. Investors could really feel “alienated if a board does not appear to be responsive … to the criticism,” he stated. That might finally result in advisories voting in opposition to director nominations, or invite an activist shareholder to take a stake in the corporate.
Starbucks intends to raised perceive what occurred, Dillon famous.
“Our board and management team will continue to engage with investors in the months ahead to understand their perspectives as part of our ongoing evaluation of our executive compensation programs,” she stated.